Organizations increasingly embed IT into physical products to develop new product innovations. However, there is wide variance in the outcomes of the IT-embedded product (ITEP) innovation process. In this paper, we posit that the IT unit’s involvement in the ITEP innovation process could positively influence the outcomes. ITEP innovations become part of complex ecosystems in which they interact with their developers, customers, and other ITEPs. These developments suggest new roles for IT units of organizations. Yet, there is dearth of theory explaining how the IT unit of a firm could contribute to the firm’s development of ITEP innovations in ways to create customer value and improve firm performance. This paper seeks to address this gap. ITEP innovations present new challenges for organizations. This paper builds on complexity science to articulate the challenges and explain how the IT unit can increase an organization’s capacity to cope with them. First, the paper adopts Wheeler’s (2002) “net-enabled business innovation model” to structure the key stages of innovation that an organization goes through in developing new ITEPs. Second, the paper articulates IT-specific uncertainties and challenges entailed in each of the four stages. Third, the paper develops hypotheses explaining how the IT unit could increase the effectiveness of each stage by helping to address these uncertainties and challenges. Finally, the paper empirically tests and finds support for the hypotheses in a sample of 165 firms. The paper contributes to the literature on IT-enabled business innovations by developing and validating a new theoretical explanation of how IT units increase the effectiveness of the ITEP innovation process.